Pakistan Money Market Review

Updated on Jan 29, 2001

The interbank money market came under pressure as mentioned in our last weekly. Overnight rates slid to as low as 2.50% and 3.00% towards the weekend as T-Bill and FIB maturities against an outflow of only Rs. 5.35 billion were witnessed. This fall in rates unanticipated by some in the market generated significant trading in the money market with activity ranging from one week to the six month tenor. Trades in the shorter tenors of one and two week were initially conducted in double digits of levels at around 10.50% and 11.00%. However the heavy lending from certain quarters of the market soon brought these levels down to as low as 5.50% and 7.00% in the respective tenors.

The term market which having remained at sky high levels finally came off the past week with trades between a wide trend. It has been in early October 2000 that one month levels had been witnessed in single digits and this was the first instance since then that one month levels along with the three and six month tenors also feeling the tremors generated due to the heavy lending. One month activity was initially witnessed at 11.25% early in the week but rates gradually came off. System generated activity was conducted as low as 10.50% prior to the auction bid pattern which once available did cause rates to slightly rise and touch 10.90% again. However this trend was short lived and rates crashed thereof with trades as low as 9.75% towards the weekend. Two month tenor rates also fell sharply to 10.00%, also more due to the maturity of all two month deals falling before the quarter end. However the three month rates still maintained a firmish outlook, even though offers having eased off from the 12.00% levels to as low as 11.40% on Saturday. This firmish outlook can be attributed to the tightness expected towards the quarter end, three and six month lending in between 12.25% and 12.50%, besides other investments at higher levels. The T-Bill auction did cause further jolts in the interbank market, especially after the Rs. 5.0 billion participation from the nationalised sector in the three month paper at 10.50% (previous cut-off 10.50%) in the form of a single bid. Rs. 353.50 million was also accepted against the six month paper at 10.91% (previous cut-off 10.95%). Prices for the Pakistan Investment Bond spiraled upward, fueled by the falling rates in the money market. Trades for the 30th December 2000 10 year issue were reported at levels higher than 101.00.

No major maturities are expected in the market the coming week while an OMO would be scheduled on Thursday. We feel that participation in the coming OMO is expected but market rates could determine the size of the participation. We expect term rates to maintain firmish specially with maturities of tenors of two months and higher are to fall in the next quarter of the financial year. However commodity inflows, the timing of which are still unknown but traditionally witnessed in the month of February, coupled with any news of readjustment of the quarter end IMF targets, could cause an adverse effect.

YIELD PROFILE
FEDERAL INVESTMENT BONDS
.	THIS WEEK	1 WEEK AGO	1 YEAR AGO
1 Year	12.15	12.25	09.50%
2 Year	12.70	12.80	10.25%
3 Year	13.00	13.10	11.00%
4 Year	13.00	13.50	11.00%
5 Year	13.25	13.75	11.50%
10 Year	13.50	14.50	12.00%

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AUCTIONS
BID DATE	INSTRUMENT		RESULT		SETTLEMENT
Jan 24	T-BILL		Jan 24		Jan 25
TARGET AMOUNT		BID AMOUNT		ACCEPTED AMOUNT
Rs.11.407 Bln.		Rs.9.201 Bln.		5.353 Bln

MATURITIES INSTRUMENT DATE AMOUNT T-Bill 11 Jan 8,450 Mln T-Bill 25 Jan 6,600 Mln

REPO RATES   THIS WEEK 1 WEEK AGO 1 YEAR AGO Overnight 03.50 10.00 04.50 1 Week 06.00 11.00 06.50 1 Month 09.50 11.25 07.50 3 Month 11.25 12.00 07.85 6 Month 11.75 12.15 08.10 1 Year 12.00 12.30 N. A.

TREASURY BILL RATES MATURING THIS WEEK 1 WEEK AGO 1 YEAR AGO 1 Month 10.50 12.25 07.85 2 Month 10.75 11.75 07.70 3 Month 11.25 12.00 07.90 4 Month 11.40 11.90 08.00 5 Month 11.60 12.00 08.10